Harrison (Buzz) Frahn IV, John Goheen, Geoff Schmelkin
Simpson Thacher & Bartlett LLP
On July 25, 2019, U.S. Magistrate Judge Joseph C. Spero of the Northern District of California granted a motion to dismiss the antitrust suit brought by the City of Oakland (“Oakland”) against the Oakland Raiders (the “Raiders”), the National Football League (“NFL”), and all thirty-one other NFL teams over the Raiders’ planned relocation to Las Vegas. City of Oakland v. Oakland Raiders, et al., No. 18-cv-07444-JCS, 2019 WL 3344624, (N.D. Cal. July 25, 2019).
In granting the defendants’ motion, the court held that Oakland had failed to allege a cognizable antitrust injury. However, the court granted the motion without prejudice, providing Oakland leave to amend the complaint by September 9, 2019. City of Oakland,2019 WL at *17.
History of the Game
The Raiders are a storied NFL franchise. They were based in Oakland from the team’s creation in 1960 through 1982, then moving to Los Angeles for a period, and returning to Oakland from 1994 through the present. Oakland and the Raiders have a history fraught with litigation, including protracted disputes related to the team’s 1982 move to Los Angeles and its subsequent return to Oakland. In 2017, the Raiders announced that they were again relocating from Oakland to Las Vegas, giving rise to the present case. Employing bump and run tactics, Oakland sued in federal court for the Northern District of California in December 2018, alleging that the Raiders, the NFL, and the league’s other thirty-one teams had violated the antitrust laws and the NFL’s own governing documents.
Illegal Motion? Previous relocation litigation
The previous relocation litigation between the parties set the stage for this case. In 1982, when the Raiders sought to relocate from Oakland to Los Angeles, the NFL attempted to block the move under Rule 4.3 of Article IV of the NFL Constitution, which requires three-fourths approval of all NFL teams for any relocation. The NFL argued that Rule 4.3 provides a measure of exclusive territoriality that is essential for league stability. The Raiders’ move to Los Angeles would bring the Raiders into the territory of the Los Angeles Chargers, another NFL team, and the Raiders received no supporting votes from any other NFL teams.
The Raiders and the L.A. Coliseum, its intended new host stadium, sued to enjoin the NFL from interfering with the relocation. The Ninth Circuit Court of Appeals ruled for the Raiders, affirming a lower court’s jury determination that Rule 4.3 was an unreasonable restraint of trade under Section 1 of the Sherman Act. See L.A. Mem’l Coliseum Comm’n v. Nat’l Football League, 726 F.2d 1381, 1397 (9th Cir. 1984) (“To withstand antitrust scrutiny, restrictions on team movement should be more closely tailored to serve the needs inherent in producing the NFL ‘product’ and competing with other forms of entertainment. An express recognition and consideration of those objective factors espoused by the NFL as important, such as population, economic projections, facilities, regional balance, etc., would be well advised.”). Following the Raiders’ move to LA, the NFL created the Relocation Policies, an addendum to Rule 4.3, that sets out factors team owners must consider when voting on any such relocation request.
Unsportsmanlike Conduct? The move to Las Vegas
Fast forward to the present, and the parties are realigned. The NFL now supports the Raiders’ planned move to Las Vegas, as do all but one of the other thirty-one NFL teams. Las Vegas has committed to provide greater funding than Oakland for the construction of a new stadium, and the Raiders have agreed to pay a transfer fee of $378 million to the NFL which will be split among the other teams per NFL policy to compensate them “for the loss of opportunity appropriated by the relocating club and the enhancement (if any) in the value of the franchise resulting from the move.” City of Oakland,2019 WL at *14.
Oakland alleges that the NFL and its teams act as a cartel by limiting the number of NFL teams to thirty-two, dictating the conditions under which cities may host one of the teams, and using relocation fees to split supracompetitive rents extracted from host cities. Oakland defines the relevant market for its antitrust claims as “the market of all Host Cities offering, and all cities and communities that are willing to offer (i.e., potential Host Cities), home stadia and other support to major league professional football teams in the geographic United States.” Ibid. Oakland claims damages, including: over $240 million invested in reliance on the Raiders remaining in Oakland, the loss of tax and other income derived from the presence of the Raiders and related economic activity, and the reduced property value of the Raiders’ stadium, in which Oakland has some degree of ownership.
Defendants filed a motion to dismiss pursuant to Rule 12(b)(6) on June 7, 2019. On July 19, 2019, the Department of Justice (“DOJ”) filed a Statement of Interest with the court to argue that Oakland’s lost tax revenue is not a cognizable injury under antitrust laws. The DOJ also sent a representative to attend the court hearing on the motion to dismiss on July 19, 2019. On July 25, 2019, the court issued an order dismissing the suit for failure to allege antitrust injury, with leave for Oakland to amend its complaint no later than September 9, 2019.
No Call: The Court Found that Oakland Failed to Allege Antitrust Injury
The court found that Oakland did not have antitrust standing because it had not plausibly alleged an antitrust injury. The opinion drew two distinct theories of injury from Oakland’s complaint and addressed each in turn.
First, Oakland alleged that the relocation fee paid by the Raiders to the other NFL teams was collusive. Oakland argued that there could be no other reason for the Defendants to desire the Raiders move “from a market with proximity to vibrant and wealthy hubs like Silicon Valley and San Francisco/Oakland to a city of transient vacationers.” Comp. at ¶10. Moreover, Oakland argued that the Defendants’ acquiescence to a move to Las Vegas is all the more striking for signaling that “gambling was no longer an issue despite the NFL’s historic and ‘unwavering’ anti-gambling stance.” Comp. at ¶77.
The court held that Oakland had not plausibly alleged antitrust injury as a result of the NFL’s relocation payment policy. The court noted that the relocation fee was an impediment to the Raiders leaving Oakland, rather than an incentive. While such an impediment may constitute an injury for the Raiders or an entity in Las Vegas sponsoring the move, the court held that any harm Oakland may have suffered from it was not of the type that antitrust laws were intended to prevent. Illustrating the court’s skepticism, the opinion notes “[a]lthough it is not clear how Oakland could amend to cure the defects of this theory, the Court grants leave to attempt to do so if Oakland so chooses.” City of Oakland,2019 WL at *10.
Second, Oakland alleged that the NFL’s thirty-two team structure amounts to a restriction on supply that drives up the amount of public funding teams can demand from cities for stadia. The court credited this theory, calling it “at the very least, plausible.” Ibid. However, Oakland does not contend that it paid the inflated rate of public stadium funding in this case. Rather, in its opposition brief to the defendants’ motion to dismiss, Oakland argues that but for the limit on the number of teams it would still host a club. As this assertion was not stated in the complaint, it could not be credited as a counter to the motion to dismiss.
The court held that Oakland had not plausibly alleged injury-in-fact as a result of the NFL’s thirty-two team structure. The court advised that there are a host of factual allegations that would need to be made to render such a conclusion plausible. These include, among others, whether there are additional potential owners willing to establish new teams if the NFL allowed them to do so, whether the Raiders would still have left Oakland for another city if the NFL allowed additional teams, and whether Oakland has made any effort to attract other existing or new expansion teams. Finally, the court noted that an evaluation of whether the thirty-two team limit is a reasonable restraint on trade will beg the question of what alternative league structure would be permissible. The court concluded that, “[b]ecause it is at least possible that Oakland could plausibly allege that it suffered harm as a result of the NFL’s structure, the current complaint’s failure to allege non-speculative damages as a result of the thirty-two team limit is not grounds for dismissal with prejudice.” City of Oakland,2019 WL at *10.
Scoreboard: Damages Theories and Other Arguments
Although failure to allege antitrust injury was sufficient cause to dismiss the complaint, the court chose to address several of the Defendants’ other arguments to demonstrate that certain aspects of Oakland’s theory of damages are unfit for inclusion in any amended complaint.
First, the court noted that Oakland is likely foreclosed by Ninth Circuit precedent from claiming antitrust damages based on its sunk municipal investment in the Raiders. See City of Rohnert Park v. Harris, 601 F.2d 1040, 1044 (9th Cir. 1979). A city may bring antitrust claims based only on its proprietary interests, and the Ninth Circuit in Rohnert Park held that a municipality’s spending of special assessment funds to improve a commercial zone did not create a proprietary interest to assert an antitrust claim. Oakland failed to move the ball and has not offered an argument to explain why Rohnert Park should not apply to its investment in stadium development for the Raiders.
Second, the court stated that Oakland cannot recover damages based on the lost tax revenue it had expected to result from economic activity associated with the presence of an NFL team. Defendants and the DOJ in its Statement of Interest argued that lost taxes are an element of the state’s sovereign rather than commercial interest, and are therefore not within Section 4 of the Clayton Act. See Hawaii v. Standard Oil Col. of California, 405 U.S. 251, 264 (1972) (“When the State seeks damages for injuries to its commercial interests, it may sue under s 4. But where, as here, the State seeks damages for other injuries, it is not properly within the Clayton Act.”). The court arrived at the same outcome in this case by different reasoning. Without ruling on the broader question of whether lost tax revenue can ever be recoverable damages in an antitrust action, the court held that Oakland’s lost tax revenues did not meet the threshold for antitrust standing. The court found that these losses were insufficiently direct, presented too much complexity in apportioning damages, and resulted in too high a risk of duplicative recovery to merit standing.
Third, the court addressed damages that the City may incur from diminution of the value of the Raiders’ Oakland stadium, the Coliseum. The nature of Oakland’s ownership interest in the Coliseum is not clear from the complaint. To merit antitrust standing, Oakland will need to allege that it was directly injured as a result of the alleged conspiracy. City of Oakland,2019 WL at *9. Additionally, the court stated that a damages theory based on the diminution of value of the stadium would require Oakland to plausibly allege that the Raiders would have remained at the present stadium but for the Defendants’ alleged antitrust violation. This will likely prove difficult for Oakland, because the complaint notes that the City entered into an agreement in 2016 with an investment group led by former NFL players proposing the construction of a new Raiders stadium in order to entice the team to remain in Oakland. Comp. at ¶65.
Finally, the court noted that Oakland’s theory of the relevant market is somewhat unorthodox given its focus on consumers rather than products. The Defendants argued that such markets are generally not cognizable. See Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1045 (9th Cir. 2008) (“First and foremost, the relevant market must be a product market. The consumers do not define the boundaries of the market; the products or producers do.”). The Defendants also argued that Oakland had not established that NFL teams do not compete with teams from other sports franchises for stadia. The court punted and concluded, “[w]hile the Court declines to resolve whether Oakland’s current allegations support a cognizable relevant market, if Oakland chooses to amend its complaint, it should consider Defendants’ arguments regarding this issue.” City of Oakland,2019 WL at *13.
Oakland’s Next Play Call
The court’s opinion contains a
how-to guide for Oakland to amend its complaint. The court signaled that an amended complaint
may survive a motion to dismiss if Oakland focuses on the NFL’s thirty-two team
structure, seeks damages related to diminution of value for the Coliseum, and
addresses the Defendants’ critique of its market definition. Nevertheless, such amendments will not
necessarily be easy to make. Oakland
will need to allege sufficient facts to establish that it would host a team
absent the NFL’s thirty-two team structure and that its ownership interest in
the Coliseum exposes it directly to anticipated antitrust damages. Despite these hurdles, an attorney
representing Oakland held the line and told news reporters that Oakland is
“very confident” that it can address the issues raised in the court’s opinion. In less than two weeks we will see whether Oakland
can successfully call an audible.
 The court also dismissed Oakland’s state law claims for breach of contract and unjust enrichment. This e-brief focuses solely on the antitrust claims.
 Magistrate Judge Spero was assigned the case under the Northern District of California’s assignment procedure, which assigns incoming cases to a judge in a proportionate, random, and blind nature using the full pool of both Article III district judges and magistrate judges. See General Order No. 44: Assignment Plan (N. Dist. Cal. 2018). Full-time magistrate judges are included in the same manner as district judges except for capital habeas corpus petitions, securities class actions, and bankruptcy appeals or bankruptcy withdrawal of reference cases. See id. §E.1. For all cases assigned to a magistrate judge, the parties must consent in writing or decline the jurisdiction of a magistrate judge. See id. § E.1.a-c. Here, the parties consented to the assignment, and accordingly Magistrate Judge Spero heard the merits.